Digging our way out

February 13, 2005|By David Walker

WASHINGTON - George Washington believed that the most important personal value was courage and the most important institutional value was fiscal responsibility. Today, our first president's sound advice is as important as ever.

But the federal government now regularly racks up deficits that exceed $1 billion a day.

More people need to focus on the facts and make tough fiscal decisions. Although recent federal deficits are a concern, it's our projected long-term fiscal imbalances that are the real problem.

Particularly sobering are the enormous commitments we face for Social Security, Medicare and Medicaid. Between the looming retirement of the baby boomers and surging health care costs, we face a rising tide of red ink.

Although the debate over Social Security reform has taken center stage lately, the commitments associated with health care are, in fact, many times greater. For example, the new Medicare prescription drug benefit is estimated to cost more than $8 trillion in current dollar terms. Down the line, we could also face federal bailouts of government-sponsored corporations such as the Pension Benefit Guaranty Corp.

Current federal liabilities and commitments exceed $43 trillion. To put that number into perspective, even with the recent run-up in housing prices, the estimated net worth of every American, including Bill Gates and other billionaires, is about $47 trillion. That means that each of us would have to fork over more than 90 percent of our net worth to cover the government's past deficits and future promises. Alternatively, every full-time worker would have to contribute more than $350,000 - and it wouldn't be tax deductible.

As shocking as these numbers are, it is the real life consequences of unchecked deficits and mounting debt that are truly frightening. As government borrows more and more money to finance its debt, less money will be available to companies to invest to stay competitive. Higher interest rates are inevitable. Ultimately, long-term economic growth will suffer, and along with it American jobs, competitive posture, purchasing power and prestige.

Mounting debt will also imperil many government services that Americans take for granted, from educating our children to defending our borders. Without meaningful change, we will eventually see pressure for deep spending cuts or steep tax increases. The result: a diminishing quality of life for future generations.

An improving economy will help in the short run, but our projected fiscal gap is far too great for us to simply grow our way out of the problem.

So how do we turn things around?

A crucial first step is to insist on truth and transparency in government financial reporting, budgeting and legislative deliberations. Our elected representatives need more-explicit information on the long-term costs of major spending and tax bills - before they vote on them. The time has also come to reinstate budget controls, such as spending caps and "pay-go" rules. Policy-makers could also benefit from an outcome-based key national indicator system to benchmark the United States' position and progress on a range of economic, security, environmental and social issues.

More fundamentally, nothing less than a top-to-bottom review of the federal government is needed on the spending and the tax side of the ledger. Many current federal programs and policies are based on conditions that existed when Harry Truman and Dwight Eisenhower were in the White House. Congress and the president need to decide which programs and policies remain priorities, which should be overhauled and which have outlived their usefulness.

We also need to revisit existing tax policy and enforcement efforts. Every year, our government forgoes hundreds of billions of dollars in revenue because of existing tax preferences, uncollected back taxes and tax evasion.

Last, but by far the biggest numbers, entitlement reform is essential. We must put Social Security and Medicare on a sound footing and make these programs solvent, secure and sustainable for future generations. The sooner we act, the better, because the financing gap from these programs is getting worse every day.

The nation's fiscal imbalance is not a partisan issue, and it has been years in the making. It will take the combined efforts of both sides of the aisle and both ends of Pennsylvania Avenue over many years to overcome this challenge.

At the same time, our citizens need to become better informed about the fix we are in and start demanding action. If Main Street America remains silent, meaningful change is unlikely. After all, why should any elected officials stick their necks out on a complex and controversial issue that they think no one cares about? Younger Americans especially need to become active in this debate, because they and their children will bear the heaviest burden if today's leaders fail to act.

Although our fiscal situation is serious, it is far from hopeless. Our country has overcome many great challenges in the past, and with leadership, vision, courage, commitment and persistence, anything is possible in America. The important thing is that we recognize reality and act soon, because the longer we wait, the tougher the task and worse our options become. We owe it to our Founding Fathers as well as future generations of Americans to act.